Bank mergers will likely slow this summer but rev up in the fall — especially if a capital gains tax hike becomes a certainty, the new head of financial institutions for Deloitte's in-house broker-dealer says.
"I do see a significant amount of M&A coming more towards the end of 2012," says Sharon Weinstein, who was recently named a managing director in New York with Deloitte Corporate Finance. She advises banks and other financial institutions on mergers, raising capital, regulatory matters and balance-sheet issues. "I do think it is going to be a very choppy market over the summer."
Weinstein previously spent two years as a managing director at FBR Capital Markets focused on banks and thrifts, and also held various investment banking positions with Wachovia, the former Banc of America Securities and JPMorgan Chase (JPM) before its 2004 merger with Bank One.
Her focus at Deloitte is offering strategic advice and other services to banks with assets of $10 billion to $50 billion. She expects more banks of that size to get off the M&A sidelines as the year progresses.
Some "larger banks are really interested in paring different business lines" to meet new capital rules, she says, while others are "looking to diversify their business mix" to make themselves more competitive.
A lot of community banks need to repay the Troubled Asset Relief Program as well as outstanding trust-preferred shares. But only franchises with strong returns are able to tap the capital markets, which means a lot of community banks will not be able to.
Some may decide to sell sooner rather than later as political gridlock raises the strong prospect of a capital gains tax increase next year. U.S. lawmakers are fighting whether to renew the capital gains and other of the so-called Bush tax cuts, which expire at yearend.
A higher capital gains tax would bite into the cash due to shareholders of selling banks, she says.
"Loan growth has been generally tepid," she says. "Quite frankly the bank boards are very burned out from navigating the downturn."